The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 22 Direct Capitalization.
-
Upload
patrick-wilcox -
Category
Documents
-
view
218 -
download
0
Transcript of The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 22 Direct Capitalization.
The Student Handbook toTHE APPRAISAL OF REAL ESTATE
1
Chapter 22
Direct Capitalization
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 2
Capitalization Rates
The ratio of the sale price to the expected net income for the next year
May be extracted from comparable sales Other methods can be used to support
capitalization rate
Student Handbook to THE APPRAISAL OF REAL ESTATE
Derivation of Overall Capitalization Rates
From comparable sales RO = NIR/EGIM
By band of investment Mortgage and equity Land and building
Debt coverage formula (mortgage underwriters method) DCR = NOI/RM
RO = M x RM x DCR DCR = NOI/ADS
Chapter 22 3
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 4
Band of Investment—Mortgage and Equity
M (Mortgage ratio) x RM Weighted Amount
(1 – M) x RE + Weighted Amount
RO
The mortgageconstantRM can be calculatedby dividingthe annualdebtservices (ADS) by the initial amountof the mortgage. It can also becalculated on the financial calculator as follows:
N = 25 x 12
I/YR = 10/12
PV = -1
FV = 0
Solve for PMT 0.009087RM = PMT x 12 0.10904
0.75 x 0.10904 =
0.08178
0.25 x 0.13000 =
0.03250
0.11428
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 5
Band of Investment—Land and Building
L x RL = Weighted Amount
B x RB = + Weighted Amount
RO
0.75 x 0.1300 = 0.09750
0.25 x 0.0900 = + 0.0225
0.120 or 12.00%
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 6
Debt Coverage Formula
RO = M x RM x DCR
RO = 0.75 x 0.10797 x 1.2
RO = 0.09717
100,000 /0.09717 = $1,029,124
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 7
Residual Techniques
The subject has NOI of $45,000/year. The VL is $95,000.
95,000 (VL) x 0.09 (RL) = $8,550 (IL)
$45,000 (NOI) – 8,550 (IL) = 36,450 (IB)
$36,450 (IB) / 0.12 (RB) = $303,750
$303,750 + 95,000 = $398,750
The RL is 9% and the RB is 12%. What is the property value?
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 8
Gross Income Multipliers and Gross Rent Multipliers
Conditions Buyers think this way Similar expense ratios Similar upside potential
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 9
Sale and Rent Comparable Worksheet
Sale price Gross rent estimate GRM
1 $280,000 $2,500 112.00
2 320,000 2,900 110.34
3 305,000 2,750 110.91
4 275,000 2,500 110.00
5 330,000 2,900 113.79
6 325,000 2,900 112.07
7 300,000 2,700 111.11
8 298,000 2,700 110.37
9 285,000 2,500 114.00
10 290,000 2,750 105.45
Average 300,800 2,710 111.01
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 10
Problems
Suggested solutions begin on page 430.
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 11
Problems 1 and 3—Suggested Solutions
Problem 1Sale 1 Sale 2 Sale 3 Sale 4
Sale Price 1,000,000 750,000 650,000 500,000 NOI 98,000 75,000 62,500 49,500 IM 9.80% 10.00% 9.62% 9.90%
75,000 / 0.0975 = 769,231$ 75,000 / 0.1000 = 750,000$
PGI 100,000V & C -7,000EGI 93,000
Fixed -35,000Variable -25,000
Net income $33,000
33,000 /0.12 = 275,000
Problem 3
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 12
Problems 5 and 6—Suggested Solutions
QuickTime™ and aTIFF (LZW) decompressor
are needed to see this picture.
QuickTime™ and aTIFF (LZW) decompressor
are needed to see this picture.
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 13
Problems 7, 8, and 9—Suggested Solutions
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 14
Problem 10—Suggested Solution
Sale 1
Sale 2
Sale 3
Sale 4
PGI = 23,040 EGI = 21,888 NOI = 14,488 RO = 0.0827
PGI = 20,280 EGI = 19,266 NOI = 12,516 RO = 0.0834
PGI = 19,980 EGI = 18,981 NOI = 12,381 RO = 0.0853
PGI = 19,800 EGI = 18,810 NOI = 12,360 RO = 0.0797
Student Handbook to THE APPRAISAL OF REAL ESTATEChapter 22 15
Problem 10—Suggested Solution
$485$500$450$435
$1,855$22,260
Vacancy and collection loss 6.00% -$1,336$20,924
$2,800$2,200$2,200
$-$7,200 -$7,200
$13,724Capitalized value $13,724 / 0.08 = $171,555
Expenses
Monthly estimated rentAnnual potential gross income
Effective gross income
Unit 1Unit 2Unit 3
Reserves for replacement
Net operating Income
Taxes InsuranceVariable expenses
Unit 4
Estimated PGI